5 May 2023

New Zealand-UK free trade agreement comes into force at end of May

2:48 pm on 5 May 2023
Prime Minister Chris Hipkins

Prime Minister Chris Hipkins said the Queen's death and political turmoil had delayed ratification in the UK, but the agreement was coming into effect faster than the government thought it might have been. Photo: RNZ / Angus Dreaver

New Zealand's Free Trade Agreement with the United Kingdom, which will eventually eliminate tariffs on all Kiwi exports to the country, will come into force at the end of the month.

Prime Minister Chris Hipkins made the announcement in London overnight, saying it would save exporters about $37 million a year from the removed tariffs.

"Now New Zealand exporters have an amazing opportunity to really take it to the world and I am confident that they're up for it."

Business groups are welcoming the news, hailing it as an important milestone in the two nations' trade relationship.

The agreement is predicted to grow New Zealand's economy by $1 billion annually.

Hipkins told Morning Report the deal gave New Zealand exporters a "huge market opportunity."

From 31 May, tariffs on more than 97 percent of exports, including wine, honey and onions, will be eliminated.

It will take up to five years for dairy and 15 for sheep meat and beef tariffs to be completely removed, although those industries will enjoy duty-free quotas in the meantime, with quota volumes gradually increasing over time which vary by industry.

New Zealand will eliminate tariffs on all UK-originating goods from 31 May.

The FTA also includes commitments to address environmentally harmful subsidies like those for fossil fuels or overfished stocks and to protect ka mate haka.

Hipkins said the deal would give New Zealand exporters a "much-needed boost."

"The UK is New Zealand's seventh largest trading partner and a crucial market for some of our key exports, so this should really help our economic recovery."

British Prime Minister Rishi Sunak said the implementation of the FTA marked a "new chapter" in the relationship between the UK and New Zealand.

"This deal will unlock new opportunities for businesses and investors across New Zealand and the UK, drive growth, boost jobs, and most importantly build a more prosperous future for the next generation," Sunak said.

NZ International Business Forum executive director Stephen Jacobi said the deal would lead to a new era in trade relations.

"When so many around the world are turning their back on trade liberalisation, New Zealand and the United Kingdom are now on a runway to a new relationship," he said.

"The NZ UK FTA is noticeable for the commercially meaningful market access and improved trade rules it provides for both sides on entry into force, which will incentivise new trade and investment.

"That is good for consumers, for businesses and for the economy as a whole."

However Jacobi said it could be one of the last all-encompassing trade agreements New Zealand enters into, as the international trade environment becomes more challenging.

"It is true that the environment against we're negotiating these agreements in is becoming more difficult, and this might well be a high watermark for our free trade efforts around the world."

Jacobi said the forum had not given up on trade liberalisation however, saying New Zealand's businesses needed a more level playing field around the world, which could only be achieved via agreements to reduce trade barriers.

"I think there is still a lot more we can be doing in Asia, which is right on our doorstep, and we've barely scratched the surface."

Jacobi said New Zealand had established trade partnerships with the Association of Southeast Asian Nations, which included countries such as Cambodia, Indonesia and the Philippines, which could be strengthened to extract more value.

Meanwhile the Auckland Business Chamber said the deal sent a positive signal to the world that New Zealand was open for business and ready to engage with its trading partners.

"After a long wait, this agreement is finally coming to fruition, and its significance cannot be overstated," chief executive Simon Bridges said.

"It unlocks unprecedented access to the UK market and will help our businesses to grow and diversify their trade.

"We expect the agreement to stimulate economic activity and create new job opportunities."

The path to the deal

New Zealand and the UK started FTA negotiations in June 2020. An in-principle agreement was reached in October the following year, the UK's second free trade deal since Brexit.

After the agreement was signed in February, both countries had to pass legislation enabling the deal.

New Zealand's Parliament did so in November but Hipkins said the Queen's death and political turmoil in the UK delayed the process in Britain.

"A lot of things happened at the end of last year, which slowed things down at this end, understandably," Hipkins said.

"Late last year it became apparent, we could be waiting some time for ratification. So it's faster than what we thought it might have been. But obviously not as fast as we might have hoped when the deal was first put in place."

Hipkins and Sunak will meet at Downing Street late on Friday night.

The agreement could not be seen as pushing New Zealand closer to a geopolitical relationship with the UK, the US and Australia along the lines of those countries' AUKUS security agreement, Hipkins said.

"I don't think you could characterise it that way at all."

"It means the commercial trading relationship between the two countries has the potential to grow and strengthen, but we've got free trade agreements with a range of countries, and we'll continue to pursue them where opportunities to do so arise."

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